RBI’s decision to reduce the repo rates by 25 bps (to 6%) second time this year was expected to the backdrop of moderating inflation. Home loan borrowers may not see much meaningful or immediate interest rate relief. Banks have not transmitted earlier MPC rate cuts to borrowers because of higher funding costs, pressure on net interest margins, higher NPAs, and a cautious lending climate.
If banks do pass on the benefits of the last two rates cuts, it will be a boost to homebuyers, particularly for those eyeing affordable housing. Many first-time homebuyers who had been hesitating to take the plunge may make their move if home loan rates reduce.
Housing prices have risen across the top 7 cities in the last one year. As per ANAROCK Research, Q1 2025 saw average housing prices rise by anywhere between 10-34% in the top 7 cities, with NCR and Bengaluru recording the highest 34% and 20% jump, respectively. The average prices in top 7 cities collectively stood at approx. INR 7,550 per sq. ft. in Q1 2024-end, while in Q1 2025-end it increased to approx. INR 8,835 per sq. ft. – a collective increase of 17% annually.
Home loan borrowers whose lenders don’t pass on the rate cut could consider negotiating a lower rate or a balance transfer. They should keep their expectations realistic as there may be only partial relief, if any. Any potential EMI reduction should be used to prepay home loans or invest for higher returns instead of on mere consumption.
